Talent Acquisition and Compliance: What’s the big deal anyway?

Mike Veronesi, Founder & Chief Executive Officer, TALENThire.com

We have all experienced a dramatic change in our landscape in the past few years, and we as recruiters have battled through the deepest recession in decades and worked towards bettering our fragile industry.  Over, the last few years we have even had to develop compassion for those that we would usually consider our competitors.  For many of us in the industry we are seeing some improvement and starting to set a better path as we move forward.  We too are seeing a strong increase in contingent labor needs.  Many of our clients and prospects are beginning to put their plans in place to bring on additional labor, however; most of these requirements are contingent or contract positions.  These organizations have much work to accomplish, but have decided that a flexible workforce is a better fit for their immediate needs. This is in direct correlation to the trends in the market including the following:

• Temporary spend has more than doubled since 1995
• Many estimates are that 50% of jobs “refilled” after the recession will be contingent
• The degree to which contingent jobs are eliminated more than “regular” jobs has significantly increased with each recession
• The organizational cultures of many companies have changed to become supportive of contingent labor
• The American worker is becoming much more understanding and accepting of contingent opportunities

Organizations are becoming familiar with the strategic nature of employing a “flexible” or contingent infrastructure and utilizing it to help them get back on track with growth initiatives following the recession.  This strategic growth and vision brings many risks that are amplified with certain steps that our government is taking. 

Compliance:

Uncle Sam and many of our state governments have recently made numerous investments to ensure compliance.  Thus, driving new tax revenue from organizations that they feel are not in compliance with the current labor laws.  The New York Times (February 17th, 2010) published an article that mentions this as a “major crackdown” area of the government.  The article began with “Federal and state officials, many facing record budget deficits, are starting to aggressively pursue companies that try to pass off regular employees and independent contractors”  Misclassification of Independent Contractors is an area that has been under scrutiny for years yet has never been so aggressively pursued.  The government’s current goal is to audit up to 6000 organizations in the coming three years.  Many in our industry are calling this a “perfect storm” due to the following:

• Federal and state governments are in dire need of increased revenues
• They recognize misclassification of employees as independent contractors as a potential major source of revenue
• At the same time many employers have decided to use independent contractors rather than hire employees
• Also, more employees are filing overtime and/or unemployment claims which trigger scrutiny of classifications
• One federal study has concluded that employers illegally pass off 3.4 million employees as independent contractors
• The US Department of Labor estimates that up to 30% of companies misclassify employees
• The White House has estimated that proper classification of workers could increase federal revenue by as much as $7 billion over the next 10 years

What’s the big deal anyway?

With all of these challenges that we have encountered in the past few years we are now faced with significantly increased compliance in the coming years.  We must all make sure that we are incorporating compliance programs within our Talent Acquisition plans.  We must begin to think about the impact that misclassifying one person much less hundreds could have on our businesses.  There are a few immediate things that we can do to begin to help protect our organizations:

1. Work with the leaders of your organization to determine what group(s) is/are responsible for insuring compliance
2. Immediately begin a mini audit of your contingent workforce: How many independent contractors do we have? What are their job descriptions, duties and responsibilities?  What type of control do we have over these individuals?  Are our employees classified as exempt or non-exempt?  What type of current contracts do we have in place?
3. Begin to build a “Compliance System” that reasonably controls risk (which can never be completely eliminated) 

Our Future:

We as Human Capital leaders must be on the cutting edge of the future of the workforce landscape and make sure that we are helping to define and implement processes that can help protect our organizations.  There are obviously new trends that we must understand and embrace in the coming years:

• Emerging New Workforces will be flexible and efficient units that are project based and measured according to success.
• Health Care Reform (The Patient Protection and Affordable Care Act) will be extremely influential in whatever form that it ends up taking.  In the current state of the Act, in the year 2014, there will be Health insurance exchanges as well as much greater individual and employer responsibility.
• Compliance risk will continue to increase as it has in the past year.  In 2009 5,786 Wage and Hour Class Actions were filed which accounted for a 40% increase from 2008.

The bottom line with compliance and risk is that organizations must take a more aggressive approach instead of waiting on the sidelines for a situation to arise.  Let’s start the journey by meeting with our executive teams to educate and explain the risk to gain the C Level buy in.  These leaders will understand quickly that ten percent or less of the cost of defending a wage and hour class action lawsuit would fund a compliance program for years to come.